Musk effect drives spread of supersize CEO pay packages

Musk’s multibillion-dollar pay package from 2018 has set the tone for other high-end pay deals, despite being thrown out by a Delaware court earlier this year. (Illustration: Emil Lendof/THE Wall Street Journal)
Musk’s multibillion-dollar pay package from 2018 has set the tone for other high-end pay deals, despite being thrown out by a Delaware court earlier this year. (Illustration: Emil Lendof/THE Wall Street Journal)

Summary

Elon Musk didn’t just upend the global auto business and space missions. The billionaire is also reshaping the landscape of executive pay.

Elon Musk didn’t just upend the global auto business and space missions. The billionaire is also reshaping the landscape of executive pay.

Musk’s multibillion-dollar pay package from 2018 has set the tone for other high-end pay deals, despite being thrown out by a Delaware court earlier this year. More executives have gotten outsize pay packages, and those packages have been bigger, in the years since Musk’s came to light.

They also have the potential to keep growing for years—generating value for CEOs along the way.

“We’ve called them moonshot awards—awards with huge potential values that executives can earn if they meet their targets," said Brian Bueno, a practice leader with pay consultancy Farient Advisors in New York.

Musk’s pay package from 2018, which required meeting a mix of market-capitalization and financial goals, drove a $1.4 billion gain for the executive last year, at least on paper. Other big-company CEOs didn’t come close.

Since 2018, Musk has received no new equity awards or bonuses from Tesla and less than $24,000 in total salary. His $1.4 billion gain reflects the increase during 2023 in the value of options that vested during the year.

It adds to $48 billion in gains on equity compensation over the preceding three years, Tesla securities filings show. Tesla’s share price has fallen nearly 30% so far this year to about $177, eroding the options’ value.

The pay package granting Musk those options was rescinded by the Delaware court in January, though the final judgment hasn’t been entered yet. Tesla reported the options as outstanding and exercisable as of the end of March, a late-April securities filing shows. The company has said it intends to appeal and is asking shareholders to re-approve the pay deal to reward Musk for the company’s successes since 2018.

Supersize era

Other supersize pay packages haven’t been as big, but more CEOs are getting them. In the past five years, three dozen CEOs of S&P 500 companies have received pay packages valued at $50 million or more, up from nine in the five years before Musk’s, according to a Wall Street Journal analysis of data from MyLogIQ, a provider of public-company data and analysis.

The total cost of those pay packages has also grown rapidly, quadrupling in the past five years from the earlier period, the Journal found.

The Journal’s analysis included CEOs on the job for at least a year at more than 400 S&P 500 companies reporting pay through mid-May for fiscal years ending after June 30, 2023. A separate analysis by MyLogIQ also showed a rise in such pay packages.

Such packages remain uncommon. Last year, the seven highest-paid CEOs in the S&P 500 received them, and two topped $150 million: Broadcom’s Hock Tan, at $162 million, and Palo Alto Networks’ Nikesh Arora, with $151 million. Just one S&P 500 pay package topped $150 million in the five years leading up to Musk’s 2018 blockbuster arrangement. Nine have done so in the five years since.

Tan has received other big pay packages in recent years, including two valued at about $60 million apiece in 2021 and 2022, and one in 2017 valued at just over $100 million. Arora’s compensation in 2018 totaled just over $125 million.

Broadcom said the company has outperformed competitors under Tan, its CEO since 2006. Tan must stay on the job for five years and Broadcom’s share price must reach certain targets after October 2025 for his equity awards to vest, Broadcom said in its securities filings. He isn’t expected to receive additional equity grants or cash bonuses over five years, the company said.

Palo Alto Networks said in securities filings that the value of equity awards in Arora’s pay include a mix of shares granted over three years.

Fair Isaac, which reported total pay of $66.3 million for CEO Will Lansing, said it includes a one-time “retention and leadership bonus" targeted at $30 million in stock and options that vests over five years. The company said its shareholder returns ranked among the top 1% of companies in the S&P 500 over the past decade and the company gives priority to long-term pay aligned with shareholder returns.

The outsiders

A few big pay packages go to less-senior executives, or to CEOs at companies outside the S&P 500, including several in the private-equity industry.

The $199 million in total pay for Jon Winkelried, CEO of private-equity manager TPG, which isn’t in the S&P 500, included $185 million of stock that vests over four to five years, described as an incentive for Winkelried to make the company more valuable. Sixty percent of the award is earned if the company’s share price rises 50% to 100% from late November levels, TPG securities filings show.

Carlyle Group, also outside the S&P 500, reported total pay of $187 million for Harvey Schwartz, including $180 million in equity when he took the job in February 2023. Carlyle valued the award at $229 million as of Dec. 31, including $22 million that vested during the year. Much of the rest vests if Carlyle shares, which recently traded around $42, reach thresholds as high as $71.80 through 2028.

Blackstone said its total return of about 83% beat other U.S. asset managers last year and that its pay structure aligns executive incentives with those of investors.

Cable giant Charter Communications valued total pay for Richard DiGeronimo, its president of product and technology, at $53.3 million, compared with $89.1 million for CEO Chris Winfrey. Most of the pay for both men consisted of options and stock vesting over five years, much of it only if the company’s shares rise 28% to 152% from when the grants were made, the company said.

Such outsize pay packages typically consist almost entirely of restricted stock or stock options. Often, the number of shares or options executives ultimately receive depends on meeting performance targets for some combination of share price and financial or operating results.

The reported figures reflect their values at the time of grant, by the company’s calculation, and can dramatically understate their potential. At the same time, the opportunity for vast riches is offset by the potential that executives ultimately realize much less, or even nothing.

A $211 million pay package put Chad Richison of Paycom Software, a payroll processor, at the top of the Journal’s 2020 CEO pay ranking. Earlier this year, Richison forfeited the stock that made up nearly all of that package when Paycom named executive Chris Thomas as his co-CEO, the company said in its securities filings.

Valuations put on the equity award reached $700 million not long after it was made, and could have climbed as high as $2 billion if the company’s share price had hit $1,000 and then $1,750 over a decade, the Journal reported at the time.

More recently, prospects appeared less promising: Paycom shares haven’t closed above $554 and traded Friday around $182.

Richison, who owns just under 12% of the company, hasn’t received additional equity pay since. Last year, cash made up about half his $3.1 million pay package, with personal flights and other perquisites making up the rest.

Write to Theo Francis at theo.francis@wsj.com

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

MINT SPECIALS